Buying MPWR at a Discount? You Are Getting Paid to Do It

At about $936.31 a share, Monolithic Power Systems (MPWR) is trading about 15% below its 52W high.

Do you think MPWR stock is a good long-term bet at current levels? What about at a 40% discount at about $560 per share? If you think that is a steal, and have some cash ready to go, here is a trade.

8.7% annualized yield at 40% margin of safety, by selling Put Options.

• Sell a long-dated Put option expiring 1/15/2027, with a strike price of $560
• Collect roughly $2,700 in premium per contract (each contract represents 100 shares)
• That’s about 4.7% annualized yield on the $56,000 you’re setting aside for the possibility of buying the stock
• This cash parked in a savings or money market account will earn an extra 4.0%, taking total yield to 8.7%
• And you give yourself a chance to buy MPWR stock at deep discounted price of $560

However, this is not the only stock strategy in town. Trefis High Quality Portfolio is a sophisticated framework designed to reduce stock-specific risk while giving upside exposure.

Possible Trade Outcomes: You Win Either Way

But to hold this trade with conviction, you want to see long term upside in the stock. Because if it comes to it, you want to be excited about buying the stock cheap.

First, you want fundamentals to check out. For details, see Buy or Sell MPWR Stock or check Monolithic Power Systems Investment Highlights

Second, you want to better understand competitive advantage and industry tailwinds. Below is what specifically gives us the conviction.

Why Hold MPWR Stock Long-Term

Monolithic Power Systems exhibits the characteristics of a long-term compounder with a wide economic moat built on high switching costs and proprietary technology. The company is strategically positioned to benefit from powerful, long-term secular tailwinds in high-growth sectors like artificial intelligence, data centers, and automotive electrification. Its fabless business model contributes to strong free cash flow generation and high margins. Even with potential short-term volatility from lawsuits or geopolitical tensions, the fundamental drivers of its business are expected to remain intact, making it a company we would be comfortable owning for a 5+ year timeframe if assigned.

Competitive Advantage

We classify MPWR’s economic moat as WIDE, with the primary source being Switching Costs

• High customer switching costs are a significant factor in retention, especially in markets with long product lifecycles like automotive, due to the deep integration of MPWR’s chips into customer designs.
• The company’s proprietary Bipolar-CMOS-DMOS (BCD) process technology and a portfolio of over 1,700 patents create a technological barrier to entry and differentiation that is difficult for competitors to replicate.
• MPWR has demonstrated strong pricing power, reflected in its consistently high gross margins (around 55%), which are well ahead of many semiconductor peers. This is attributed to its differentiated, value-add products and a value-based pricing model.
• The company has been gaining market share, tripling its share in the analog sector to 2.5% over nine years and increasing its share in the power semiconductor market from approximately 2% in 2017 to 4% in 2022.

See Monolithic Power Systems Full Analysis.

Industry Tailwind

The industry tailwind is STRONG, with CAGR projection of 5.5% – 7.6% (Source: SNS Insider, Strategic Market Research)

Secular Trend: The power management IC market is driven by several powerful secular megatrends, including the expansion of AI and data centers, the electrification of vehicles (EVs), the rollout of 5G networks, and the proliferation of IoT devices.
Key Risks: A securities fraud class action lawsuit alleges significant performance and quality control issues with products supplied to a major customer, potentially damaging a key relationship. The company also faces geopolitical and supply chain risks due to its reliance on Chinese suppliers for manufacturing, assembly, and packaging.

Financial Guardrails

Cash Generation: Positive Free Cash Flow
Balance Sheet: MPWR maintains a strong, debt-free balance sheet with a significant cash position, indicating a very low risk of bankruptcy.

Not comfortable with options or stock-specific trades? PORTFOLIOS are even better.

Stock Picking Falls Short Against Multi Asset Portfolios

Single markets are unpredictable but different assets react differently. A multi asset portfolio cuts downside shocks while keeping upside on the table.

The asset allocation framework of Trefis’ Boston-based, wealth management partner yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Our partner’ strategy now includes Trefis High Quality Portfolio, which has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices